GBP/EUR Rallies and Sterling Starts to Claw Back Losses

The Pound Euro (GBP/EUR) exchange rate began to push back early this morning, regaining some of its losses from last week despite disappointing UK housing data.

Rightmove released its latest house price data this morning, with the figures showing the largest drop in November house prices since 2012. Former hotspots are being hit the hardest, and the average asking price for a home in the UK has fallen 0.2% in the last year.

The largest declines in house prices were in London, where prices slid 1.7%, and in the South East where prices fell by a whopping 2.1%.

The Eurozone, meanwhile, published some mixed construction output data this morning. While output fell 2.0% on the month in September, it was up 4.6% on the year – a significant improvement on Augusts’ annual figure.

GBP/EUR Exchange Rate Suffered from Brexit Chaos and Prospect of Vote of No-Confidence

Pound Sterling (GBP) exchange rates came under extreme pressure last week, with the Brexit chaos causing the GBP/EUR pairing to drop dramatically towards the end of last week’s session.

The Pound Sterling to Euro (GBP/EUR) exchange rate fell from highs of €1.1549 to lows of €1.1234 last week, before clawing back some of its losses before the weekend.

Despite the ongoing drama surrounding Brexit and Theresa May’s Cabinet, the avoidance of further resignations, including that of Michael Gove, helped Sterling recover somewhat from the chaotic chain of resignations on Thursday.

Despite this, Theresa May could still face a turbulent week within Parliament as the threat of a vote of no-confidence still looms over her head. If the 48 letters needed to trigger a vote of no-confidence are submitted, Sterling could have another bumpy ride this week.

GBP/EUR Drops Following Draghi’s Confident Tone

An upbeat speech from Mario Draghi, President of the European Central Bank (ECB), kept the GBP/EUR exchange rate on the back foot on Friday.

Speaking in Frankfurt, Draghi’s confident tone bolstered the Euro as he emphasised that the weakness seen in Eurozone data recently will prove to be temporary. He also indicated that the bank still plans to wind down its stimulus programme by the end of 2018.

Draghi stated the ‘effect should be temporary […] the latest data already show production normalising’ and ‘we still see the overall risk to the growth outlook as broadly balanced, in large part because the underlying drivers of domestic demand remain in place.’.

Investors seemed to largely ignore the tension between Rome and Brussels, yet this could cause volatility for the Euro in the coming week as Italy remains defiant.

Further Brexit related chaos will undoubtedly cause volatility for Pound Sterling (GBP) exchange rates if the threat of a vote of no-confidence materialises.

The tone of Bank of England (BoE) Governor Mark Carney’s testimony in London could also cause GBP/EUR exchange rate movement. A positive tone could cause Sterling to rally against the Euro, while a downbeat attitude would be Sterling-negative.

Over the next week investors will be keeping their gaze focused on Italy, as it remains unclear how the European Commission will react in the face of Italy’s defiance.

Deputy Prime Minister Matteo Salvini said today that ‘If, as it seems, it [the plan] damages Italy, it will never have our support’.

If Italy continues to defy the European Commission it may cause the Euro to slump against the Pound.